FAR 3-7: Intercompany Transactions Flashcards

1
Q

Name several pro forma workpaper elimination entries when producing consolidated financial statements

A

Eliminate:

  • The effects of intercompany dividends
  • Parent’s investment in sub account
  • The entire stockholder’s equity section of the sub
  • The effects of the gain or loss & adjust for the excess depreciation on the sale of PPE between affiliates
  • All intercompany sales & purchases
  • All other intercompany balance sheet & income statement accounts
  • Intercompany profit in COGS, & in beginning & ending inventories relating to an intercompany sale of merchandise between affiliates

Adjust:

  • Recognize NCI
  • Adjust the balance sheet of the sub to fair value
  • Establish goodwill
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2
Q

State the workpaper elimination entry for intercompany inventory transactions

A

Dr. Retained earnings (intercompany profit in beginning inventory)
Dr. Intercompany sales
Cr. Intercompany COGS
Cr. COGS (intercompany profit in goods sold)
Cr. Ending inventory (intercompany profit in ending inventory)

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3
Q

State the workpaper elimination entry for intercompany bond transactions

A

Dr. Bonds payable
Dr. Premium (or credit discount)
Cr. Investment in affiliates bonds
Cr. Gain on extinguishment of bonds (or debit loss on extinguishment of bonds)

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4
Q

State the workpaper elimination entry for intercompany land transactions

A

Dr. Intercompany gain on sale of land

Cr. Land

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5
Q

State the workpaper elimination entries for intercompany depreciable assets transactions

A

*Elimination Entry 1—Eliminate intercompany gain & adjust assets & accumulated depreciation to original amounts:
Dr. Intercompany gain on sale of machinery
Cr. Machinery
Cr. Accumulated depreciation

*Elimination Entry 2—Eliminate excess depreciation:
Dr. Accumulated depreciation
Cr. Depreciation expenses

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